5/25/2022

Globalization

LEARNING
OUTCOMES
• Explain the nature of globalization;
• Assess the pace and extent of
globalization;
• Analyse the factors driving and
facilitating globalization;
• Explain the importance of globalization
for organizations and countries; and
• Analyse the factors inhibiting
globalization

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WHAT IS
GLOBALIZATION
• The global integration of economies and
societies
• Globalization involves the creation of linkages
or interconnections between nations. It is
usually understood as a process in which
barriers (physical, political, economic,
cultural) separating different regions of the
world are reduced or removed, thereby
stimulating exchanges in goods, services,
money, and people.
• Removal of these barriers is called
liberalization.
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History of globalization
• Age of discovery (15th-18th centuries)
• Globalization 1.0 (19th century-1914)
• Globalization 2.0 (1945 – 1989)
• Globalization 3.0 (1989 – 2008)
• Globalization 4.0 (2008 + )

https://www.weforum.org/agenda/2019/01/how-globalization-4-0-fits-into-the-history-of-globalization/

Globalization is
not global (Yet)
Globalization is something of a
misnomer because most foreign trade
and investment takes place within and
between four economic blocs:

• Western Europe, dominated by EU

member states;
• North Atlantic Free Trade Area
(NAFTA) comprising the USA,
Canada, and Mexico;
• Japan; and
• China.

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The indicators
of globalization
There are three main
economic and financial
indicators of globalization.
These are:
• international trade in
goods and services;
• the transfer of money
capital from one country
to another; and
• the movement of people
across national borders.

1.Goods & services -

International trade

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https://unctad.org/news/global-trade-hits-record-high-285-trillion-2021-likely-be-subdued-
2022#:~:text=%E2%80%9COverall%2C%20the%20value%20of%20global,the%20COVID%2D19%20pandemic%20struck.

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The second main driver is the transfer of money capital across borders.
This can take two forms.

2. Money capital The first, foreign indirect investment (FII, or portfolio investment) -
– Financial flows occurs where money is used to purchase financial assets in another
country. These assets can comprise
• foreign stocks
• bonds issued by governments or companies
• or even currency.
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Migrant remittance
• Another example of cross-border flows of money is migrant remittances. Migrants
often send money to their home countries, and the total amount has grown over time

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• The second form of capital

movement is FDI.
• This occurs when a firm
establishes, acquires, or
increases production facilities in
a foreign country.
• Multinational corporations
(MNCs) are responsible for FDI
and the massive increase that
has occurred in FDI in the last 50
years.
• The distinguishing feature
between FII and FDI is that
MNCs not only own the assets
but also exercise managerial
control over them.

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FDI Cont.;
• Until 2010, FDI largely involved MNCs in rich countries investing in
production facilities in other rich countries, with developing countries
and Eastern Europe, having smaller and less lucrative markets, playing
only a minor part.
• Where FDI did take place in poor countries, it was often to exploit
natural resources such as oil or other minerals, to take advantage of
cheap labour, or, sometimes, to penetrate a market

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3. People - Migration

The globalization of
markets has not been
paralleled by the
liberalization of labour
flows. While globalization
has led to the dismantling
of barriers to trade in
goods, services, and
capital, barriers to cross-
border labour movements
are not falling as fast

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Migration – different types

• People move for a variety of economic, social, and political reasons.
• They may move voluntarily to find work, to earn higher wages, to
study, or to reunite with their families.
• Widening inequalities in income and job opportunities increase the
pressures to move.
• Movement may also be stimulated by employers in developed
countries actively recruiting labour from abroad
• Migration may also be involuntary where people, often in large
numbers, are forced to migrate by political instability and violations of
human rights

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• Large short-term
movements of people
also occur as a result of
executives going on
foreign business trips,
students involved in
study abroad, and
tourism

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Drivers of Globalization
• Globalization is an ongoing process
• The process has also embraced an increasing
number of countries, as free market ideology
was accepted as the dominant economic
philosophy
• The big MNCs have not been passive
participants in the liberalization process. They
are usually to be found at the forefront,
pushing governments to open up their
economies by removing barriers to trade and
investment
• There are factors facilitating the globalization
of business and the barriers that help keep
business ‘local’.

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Facilitators
• Political/Regulatory - through international
organizations, free trade areas, custom
unions and common markets
• Technological - Improvements in
communications, and reductions in
transport costs, have facilitated the
movement of goods, services, capital, and
people
• Economic - High scale of investment
needed for R&D and production facilities,
therefore need larger market to recover the
investment

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Barriers
• Government Policies
• Tariffs and Subsidies
• Foreign Aid
• Controls on Capital
• Public Procurement
• Border and Immigration Controls
• Technical Standards
• Protection of Intellectual Property
Rights
• Cultural and Geographical Distance
• Corruption

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Benefits for businesses

• Open up markets to businesses that were previously excluded, giving
them the possibility of higher revenues and growth
• Give business access to cheaper supplies of final products,
components, raw materials, or to other factors of production, such as
labour, which lowers their costs and makes them more competitive.
• Allow firms to obtain previously denied natural resources

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Costs for businesses

• The environment is likely to become more complex and riskier.
Business is confronted by new sets of factors in the form of different
political regimes, laws and regulations, tax systems, competition
policies, and cultures
• Inefficient firms may find that it removes the barriers protecting them
from foreign competitors.
• Globalization can raise the dependence of plants and firms on foreign
markets and suppliers.
• Globalization can cause the environment to become more volatile

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